[HN Gopher] Ask HN: How do I gauge the value of stock options th...
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Ask HN: How do I gauge the value of stock options that I have been
offered?
Throwaway for obvious reason. I've been working at the current
startup for a little more than 4 years and was offered total around
400,000 options. It requires another 4 years to fully vest those
400k options. We raised totally about $10M and have about 55M
shares outstanding. Our current 409A value is $0.07. The company is
going to raise series A in the next 15 months. My cash comp is
around $60k. I have another offer at $120k. Should I stay at
current company for options in the next 4 years or should I join
the new one (pure cash, no options)? What questions should I ask
the founders to be able to gauge these?
Author : throwaway_9989
Score : 13 points
Date : 2021-11-21 19:26 UTC (3 hours ago)
| alexpetralia wrote:
| Leave yesterday.
| byoung2 wrote:
| Your cash comp is low...they can't pay market rate after 4 years?
| The options are probably worthless, go for the salary at a new
| place. You missed out on $60k x 4 years.
| lacker wrote:
| Here is an optimistic way to calculate. If there are 55M shares
| outstanding, then 400,000 options represents about 0.7% of the
| company. You need to make your own estimate for how much the
| company is worth right now. If the company raised around $10M
| total, then knowing nothing else, a reasonable guess is that the
| company is worth about $40M total. That would make the underlying
| stock of your options worth about $280k, you can subtract the
| cost to exercise, maybe it ends up being a bit lower like $240k.
| It's over four years, so that's roughly $60k a year.
|
| So, even in the optimistic case, your option package isn't that
| great. Your company is offering a pretty low cash comp, and
| unsurprisingly, they're also offering a low option comp. A good
| company would offer more to someone even with zero years of
| experience (assuming you're a software engineer). And this is an
| optimistic evaluation where you really believe in the startup.
| Your comp is low, ask for a bigger raise or just switch jobs
| unless you really like it there.
| gruez wrote:
| >You need to make your own estimate for how much the company is
| worth right now. If the company raised around $10M total, then
| knowing nothing else, a reasonable guess is that the company is
| worth about $40M total. That would make the underlying stock of
| your options worth about $280k, you can subtract the cost to
| exercise, maybe it ends up being a bit lower like $240k.
|
| If those options are ISOs, then their exercise price is almost
| certainly going to be equal to the 409A valuation, which means
| they're worth $0 upfront[1] and gain value as the company grows
| more valuable. Since you only make money if the company's value
| goes up, it's almost impossible to accurately assign a value to
| it.
|
| [1] I use "worth" loosely here. More accurately they have
| intrinsic value of $0 upfront (maybe a bit more because the
| company has grown since the last 409A), and some hard-to-
| determine time value. see:
| https://en.wikipedia.org/wiki/Option_(finance)#Basic_decompo...
| holonomically wrote:
| If you don't believe the company will be successful then you're
| admitting the options are worthless. The whole point of stock
| options is to align incentives but if you don't think the company
| will be successful then it doesn't matter how you crunch the
| numbers. You might as well go get a job with a high salary.
| chris11 wrote:
| There's guides out for evaluating startup equity. Here's a
| couple. https://www.holloway.com/g/equity-compensation
| https://manual.withcompound.com/manual-company-equity/unders...
|
| I don't agree you should assume equity as worthless. Especially
| for larger vc funded startups. But equity can get complicated,
| and it's possible for a company to have an exit and for you to
| lose money. But the majority of early stage start ups will fail.
|
| Though the $120k offer seems much better. Could you negotiate
| equity or improve salary? 100k*.07 means they are giving you the
| option to buy 7k worth of equity a year. You are giving up 60k a
| year in lost salary to do that. So your equity would need to
| about 10x before you make up the lost salary.
| artfulhippo wrote:
| Controversial take: as an insider, you are in a strong position
| to determine the value of the options. Is your company under- or
| overvalued? Is your product better or worse than people think? Is
| the company culture and morale greater or lesser than average?
| Are you excited to get up in the morning or do you dread each
| moment of work? Do you care about the content of your work, the
| field that your in, solving your customers problems, or are you
| interested only in your own engineering problems? Are business
| decisions made primarily by ego, the boss's gut, office politics,
| or do good data and clear explanations win arguments regardless
| of who makes them?
|
| Startups are high risk, especially if you have all your eggs in 1
| basket. Whether it's reasonable to take the risk depends on data
| points that only you can ascertain.
|
| The hard part is being honest with yourself. If you've invested 4
| years into this job, you surely have emotional attachments to it
| that transcend economics. Feelings of loyalty are good and
| normal. One key question to ask is how much loyalty do the
| founders feel to you? Would it be hard for them to replace you?
| Do they treat you with respect and camaraderie or like a machine
| that produces algorithms? Are they competent, inspiring people
| that you learn from, or "idea guys" who are good at pitching but
| not much else? If you were the CEO, would you hire them?
|
| Just a few of the questions I would ask myself in your shoes.
| TimTheTinker wrote:
| Fully agreed. Posts saying they're "worth $0" are most likely
| to be accurate if you take the average early-stage startup
| (most fail).
|
| But as an insider, you have the ability to uniquely gauge
| whether this is an "average" startup, or one where truly
| thoughtful, innovative, honest, humble people are working hard
| for a dream that, from your vantage point, has a good chance of
| panning out, even modestly.
|
| I will say that your $60k compensation isn't a good sign,
| though. It signals that the engineers they've hired either (1)
| are great engineers and they really, _really_ believe in the
| future of the company, or (2) aren 't that great. You can
| probably gauge which is the case for yourself, but across all
| low-paying startups, (1) would be a very rare case, and (2)
| would be far more likely.
| exolymph wrote:
| Don't. Options are a lottery ticket, and if this were a hot
| startup they'd be paying you $100k+ in addition to those options.
| Get out.
|
| For perspective, I make more than you (in cash) as a community
| manager / content-marketing person at a pre-A startup.
| fdgsdfogijq wrote:
| General rule of thumb for any early stage startup, is if you are
| not a founder, or C level employee getting multiple single digit
| equity percentages, use this equation:
|
| $VALUE_OF_EQUITY_GRANT * 0 = 0$
|
| seriously. value it at 0
| vb6sp6 wrote:
| Zero dollars
| pontifk8r wrote:
| Seems like you should have been fully vested from any original
| grants by now. So, 8 year vesting, plus the low salary? Hope you
| are learning things that will position you for success in your
| next role.
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(page generated 2021-11-21 23:02 UTC)